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SA Inc's telecoms stakes are 'bad' investments

Nicola Mawson
By Nicola Mawson, Contributor.
Johannesburg, 21 Nov 2014
The state needs to loosen its hold on Telkom and invest the cash in service delivery.
The state needs to loosen its hold on Telkom and invest the cash in service delivery.

Government should sell its bad investments in Telkom and Vodacom, and use the cash injection to beef up the fiscus; delivering much-needed services to areas that are under pressure, such as Eskom.

The state owns 39.76% of Telkom, a stake worth just more than R13 billion, and also has a 13.91% share of Vodacom - worth double its Telkom investment, notes Vestact. However, Telkom has not paid any dividends in the past three years, while government has reaped R5 billion from Vodacom in the same time, says Vestact analyst Sasha Naryshkine.

Telkom has been battling for some time now and its results this week show it continues to be under pressure to grow its top line and find new revenue streams while it is in the midst of a restructuring process. For the first half of the year, Telkom recorded flat revenue, which only gained 1.6% to R13.3 billion, and its operating profit declined from R3 billion to R1.6 billion.

Developmental needs

Naryshkine "cannot see how Telkom is going to grow top line relative to the more nimble providers, like Vodacom (who themselves are under pressure)". He says if government really wanted cheaper broadband for all, it would sell its Telkom stake tomorrow.

However, Naryshkine doubts this will happen because it does not suit the state's developmental objectives of rolling broadband for all; an area in which Telkom sees itself as a strategic asset.

Absa analyst Chris Gilmour says there is no reason for government to have a stake in Telkom, and its Vodacom investment is "even more bizarre" because it does not have a strategic stake. "It beggars belief."

Gilmour says the state's investment in the two telcos is "dead money" and the time has come now to sell because it has "come to the end of the road. It's a complete waste of time and a complete waste of taxpayers' money."

Government should allow Telkom to get on with business, says Gilmour. "They should get out of Telkom entirely; they should get out of Vodacom entirely."

Bad for citizens

Gilmour says government should rather use the cash to focus on service delivery at a time when state debt is high - R1.6 billion - and Eskom desperately needs a cash injection. He says the investments have been lousy for citizens, especially as Telkom's share price has not performed well since listing at R28 in 2003. Telkom's stock hit an all-time low of about R11 last May, but has since been recovering and is now worth R64.77.

Free Market Foundation director Leon Louw echoes Gilmour's sentiments, adding there is no need for government to play in the telecoms space as there are several competitors. He says its stakes in telecoms are a "terrible, bad investment".

"It must get out of telecoms; it is quite clearly a silly place to be and is a relic of the past." Government's Vodacom stake is a legacy one that it inherited after Vodacom was listed in 2009, and Vodafone increased its stake to 65%.

However, Naryshkine advocates government maintain its Vodacom shares because it is a revenue-spinner. "It makes no sense for government to get out of a revenue-spinner."

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